Wealth tax

Long term capital gains tax is placed on any asset that is purchased and held for one year or more and then sold. The tax is lower to encourage people to invest. Biden's proposed tax plan removes this tax break by raising the capital gains rate to the rate on regular taxes. Many people who own capital assets keep them for much longer than one year in order to postpone paying taxes. If the law is changed abruptly it could causes problems for the market. For example if the law was scheduled to change next year then all people holding capital assets would sell them this year in order to get the lower rate. This would result in a large market sell off. This sell off however may be unavoidable for rich people. Part of Biden's tax proposal includes a 25% minimum tax on all whose net worth is more than $100 million dollars. If you are one of those people your income comes mostly from capital gains so you will be taxed on those even if they haven't been sold which are referred to as unrealized capital gains. The problem is how do you determine the value of these unrealized gains if you don't sell them. Say you invested in $10 million in a shopping mall and its now years later. The mall has gone up in value but you have no idea by how much. So you estimate it is worth $11 million and you pay your tax on the one million gain but next year you will pay tax on that one million and every year after that. This is what happens when you pay tax on assets as opposed to income. This has a name. It is called a wealth tax. It is not only difficult for people to determine the value of unsold assets, it is difficult for the IRS. Maybe this is why they needed 87,000 new agents.